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  • Digest-MWSS v. Daway

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    Namiel Maverick D. Balina
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    The case involved a dispute over concession fees between MWSS and Maynilad after Maynilad unilaterally suspended payments. The court ruled that the rehabilitation court exceeded its authority by enjoining MWSS from drawing on letters of credit issued for Maynilad, as the banks' obligations under the letters of credit were solidary with Maynilad's and therefore not under the rehabilitation court's jurisdiction. The order preventing MWSS from collecting on the letters of credit was declared null and void.

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    The case involved a dispute over concession fees between MWSS and Maynilad after Maynilad unilaterally suspended payments. The court ruled that the rehabilitation court exceeded its authority by enjoining MWSS from drawing on letters of credit issued for Maynilad, as the banks' obligations under the letters of credit were solidary with Maynilad's and therefore not under the rehabilitation court's jurisdiction. The order preventing MWSS from collecting on the letters of credit was declared null and void.

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    95 views2 pages

    Digest-MWSS v. Daway

    Uploaded by

    Namiel Maverick D. Balina
    The case involved a dispute over concession fees between MWSS and Maynilad after Maynilad unilaterally suspended payments. The court ruled that the rehabilitation court exceeded its authority by enjoining MWSS from drawing on letters of credit issued for Maynilad, as the banks' obligations under the letters of credit were solidary with Maynilad's and therefore not under the rehabilitation court's jurisdiction. The order preventing MWSS from collecting on the letters of credit was declared null and void.

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    of 2

    G.R. NO. 160732.

    June 21, 2004

    MWSS v. Daway

    MAIN TOPIC – Different Kinds of Obligations (Solidary Obligations – When Solidary Liability Exists)

    I. FACTS:
    1. Maynilad was granted by MWSS under a Concession Agreement a twenty-year period to manage, operate, repair,
    decommission and refurbish the existing MWSS water delivery and sewerage services in the West Zone Service
    Area, for which Maynilad undertook to pay the corresponding concession fees on the dates agreed upon in said
    agreement which consist of foreign loans.
    2. Maynilad was required under the said contract to put up a bond, bank guarantee or other security acceptable to
    MWSS.
    3. Maynilad arranged for a three-year facility with a number of foreign banks, led by Citicorp Int’l Ltd., for the issuance
    of an Irrevocable Standby Letter of Credit in favor of MWSS for the full and prompt performance of Maynilad’s
    obligations to MWSS.
    4. Maynilad is asking for a mechanism by which it hoped to recover the losses it had allegedly incurred and would be
    incurring as a result of the depreciation of the Philippine Peso against the US Dollar and in filing to get what it
    desired, Maynilad unilaterally suspended the payment of the concession fees through an amendment of the
    Concession Agreement
    5. However, Maynilad served upon MWSS a Notice of Event of Termination, claiming that MWSS failed to comply
    with its obligations under the Concession Agreement and its Amendment regarding the adjustment mechanism that
    would cover Maynilad’s foreign exchange losses. Maynilad filed a Notice of Early Termination of the concession,
    which was challenged by MWSS. This matter was eventually brought before the Appeals Panel by MWSS.
    6. The Appeals Panel ruled that there was no Event of Termination as defined under the Concession Agreement and
    that, therefore, Maynilad should pay the concession fees that had fallen due.
    7. The award of the Appeals Panel became final. MWSS submitted a written notice to Citicorp Int’l Ltd, as agent for the
    participating banks, that by virtue of Maynilad’s failure to perform its obligations under the Concession Agreement,
    it was drawing on the Irrevocable Standby Letter of Credit and thereby demanded payment.
    8. Prior to this, Maynilad had filed on a petition for rehabilitation before the RTC of Quezon City which resulted in the
    issuance of the Stay Order and the disputed Order of November 27, 2003.

    II. ISSUE/s
    1. Whether or not the rehabilitation court sitting as such, act in excess of its authority or jurisdiction when it enjoined
    the petitioner from seeking the payment of the concession fees from the banks that issued the Irrevocable Standby
    Letter of Credit in its favor and for the account of respondent Maynilad
    2. Maynilad’s argument that petitioner had a plain, speedy and adequate remedy under the Interim Rules itself which
    provides in Sec. 12, Rule 4 that the court may on motion or motu proprio, terminate, modify or set conditions for the
    continuance of the stay order or relieve a claim from coverage thereof.
    3. Whether or not Maynilad’s argument that by commencing the process for payment under the Standby Letter of
    Credit, petitioner violated an immediately executory order of the court and, therefore, comes to Court with unclean
    hands and should therefore be denied any relief.
    4. Whether ot not the respondents claim that the filing of the petition pre-empts the original jurisdiction of the lower
    court is without merit.

    III. HELD
    1. Yes. The court held that except when a letter of credit specifically stipulates otherwise, the obligation of the banks
    issuing letters of credit are solidary with that of the person or entity requesting for its issuance, the same being a
    direct, primary, absolute and definite undertaking to pay the beneficiary upon the presentation of the set of documents
    required therein. The public respondent, therefore, exceeded his jurisdiction, in holding that he was competent to act
    on the obligation of the banks under the Letter of Credit under the argument that this was not a solidary obligation
    with that of the debtor. Being a solidary obligation, the letter of credit is excluded from the jurisdiction of the

    Ponente: Azcuna, J.

    Digest Maker: Balina, Namiel Maverick


    G.R. NO. 160732. June 21, 2004

    MWSS v. Daway

    rehabilitation court and therefore in enjoining petitioner from proceeding against the Standby Letters of Credit to
    which it had a clear right under the law and the terms of said Standby Letter of Credit, public respondent acted in
    excess of his jurisdiction.
    2. The court held that the issue must be ruled in favor of Maynilad. Hence, to pursue their opposition before the same
    court would result in the presentation of the same arguments and issues passed upon by public respondent.
    3. No. It is true that the stay order is immediately executory. It is also true, however, that the Standby Letter of Credit
    and the banks that issued it were not within the jurisdiction of the rehabilitation court. The call on the Standby Letter
    of Credit, therefore, could not be considered a violation of the Stay Order.
    4. No. The Court held that it does not pre-empt the original jurisdiction of the lower court. The purpose of the initial
    hearing is to determine whether the petition for rehabilitation has merit or not. The propriety of the stay order as well
    as the clarificatory order had already been passed upon in the hearing previously had for that purpose. The
    determination of whether the public respondent was correct in enjoining the petitioner from drawing on the Standby
    Letter of Credit will have no bearing on the determination to be made by public respondent whether the petition for
    rehabilitation has merit or not.

    IV. DISPOSITIVE PORTION


    WHEREFORE, the Petition for Certiorari is granted.The Order of November 27, 2003 of the Regional Trial Court of
    Quezon City, Branch 90, is hereby declared null and voidand set aside. The status quo Order herein previously issued
    is hereby LIFTED. In view of the urgency attending this case, this decision is immediately executory.
    No costs. SO ORDERED.

    V. DOCTRINE
    In contracts of guarantee, the guarantors obligation is merely collateral and it arises only upon the default of the
    person primarily liable. On the other hand, in an irrevocable letter of credit, the bank undertakes a primary obligation.

    Ponente: Azcuna, J.

    Digest Maker: Balina, Namiel Maverick

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